Wrongful trading (UK insolvency law)
In an insolvent liquidation, Insolvency Act 1986 section 214 can permit the court, on the liquidator’s application, to require a director to contribute to company assets where, before winding up, the director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or administration. The statutory defence concerns taking every step the director ought to have taken to minimise potential loss to creditors. The test is not the same as fraudulent trading and does not require proof of dishonesty. Separate provisions apply in administration.
Worked example
A director continues to incur substantial liabilities after they knew or should have concluded there was no reasonable prospect of avoiding insolvent liquidation or insolvent administration. Following insolvent liquidation, the liquidator assesses the evidence, the statutory defence and whether to apply to the court for a contribution.
Common mistake
Assuming every company loss or insolvency proves wrongful trading, or that fraud must be established.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | LW (ENG) | Direct | September 2026–June 2027 |